Download - Market size - Avatech Accelerator
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AVACAMP 1 – MARKET SIZESeptember 2016
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• Market size: measure of the total volume of a market
• Total Available / Addressable Market (TAM): total revenue opportunity for your product and everyone you want to reach with your product, doesn’t tell you much
• Serviceable Addressable Market / Served Available Market (SAM): portion of TAM that is served by your product or portion of TAM you are targeting
• Serviceable Obtainable Market (SOM) / Target market: portion of SAM where you start serving and where you will realistically reach, especially within the first few years
Market size and some definitions
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• It tells you about the business potential of your idea
• One of the first things investors will look at, the bigger your market size, the lower the risk of investment
• Need to know your business potential early on, maybe your market is too niche and you decide to pursue another idea
• Determines your business decisions, marketing strategy, etc.
Why market size?
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Let’s say you are starting a company that sells pet food:
TAM: the market for pet food SAM: the market for dog food SOM: the market for puppy food
Let’s stay you are starting an e-learning company:
TAM: the market for learningSAM: the market for online learning SOM: the market for online learning about technology
Let’s say you are a opening a movie theatre:
TAM: all people who can watch movies – age 3-90 SAM: all people who go to movies in your townTOM: all people who go to action movies
Example
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What are TAM, SAM and SOM for Facebook?
TAM:
SAM:
SOM:
Exercise
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Facebook’s market size:
TAM: All people in the world
SAM: All people who can be online
SOM: Harvard students
Exercise
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• Go back to the problem your startup is solving
• Somewhat arbitrary, no right answer
• Figure out what makes sense for your startup and product and also, what would make sense to your investors
• Be logical and consistent
Methodology
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• Start from TAM, then down to SAM and then to SOM
• To verify, then start from the bottom, SOM and move your way back up to SAM and TAM
• Or the other way around, do it until the numbers agree
Methodology – top-down & bottom-up
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• Identify the different factors that impact the sale of your product, e.g., age groups, geographical location, socio-economic background, income, education level, etc.
• Look for numbers that make sense and use the numbers you already have based on your revenue, customer behaviour, etc. so far
• Government reports• Business reports • Official statistics • Make assumptions
• Cite your sources
Methodology – tools
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• Numbers, the bigger the better, but realistic and justifiable
• Clarity of your assumptions
• Your optimism
• Your market analysis, understanding of competitors, potential penetration, growth, etc.
• Don’t say “our TAM is this…,” explain the process, “according to research done by … we estimate that x number of people are buying online and out of this, y number of people are buy electronic goods, and z number of people make enough money to afford our product, … so, our market size is estimate to be…”
What do investors look for?
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Based on what you know, come up with your market size and then present to the group.
Your market size